Case Law Details
Mohmed Hasib Tejamul Shaikh Vs ITO (ITAT Surat)
ITAT Surat held that when any expense is not claimed, no disallowance is permissible. Accordingly, disallowance u/s. 43B on account of unpaid service tax not warranted as the same is not claimed as deduction in P&L account.
Facts- Vide the present appeal, the appellant has contested disallowance u/s. 43B of the Income Tax Act, 1961 on account of unpaid service tax. Assessee submits that in the computation of income, the assessee has not claimed deduction of unpaid service tax liability of Rs. 14,43,922/-, therefore, there is no question for such disallowance by Assessing Officer. The Assessing Officer and the ld. CIT(A) failed to appreciate such fact that when any expense is not claimed, no such disallowance is permissible.
Conclusion- Held that the CPC/Assessing Officer while processing the return of income, disallowed unpaid service tax liability on the basis of reference in audit report/ Form-3CD. The ld. CIT(A) confirmed the action of CPC/Assessing Officer by taking view that the assessee claimed that they are following mercantile system of accounting and followed exclusive method of the purpose of accounting of service tax but no evidence was filed before him, even in the audit report there is no such reference. Before me, the ld. AR of the assessee vehemently argued that no such deduction is claimed by assessee in his P&L account. Considering the fact that the assessee has not claimed such deduction in his P&L account, therefore, no disallowance is warranted.
FULL TEXT OF THE ORDER OF ITAT SURAT
This appeal by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), Addl/JCIT (A)-1, Nashik [in short, the ld. CIT(A)] dated 31/03/2024 for the Assessment Year (AY) 2017-18. The assessee has raised following grounds of appeal:
“Ground on addition of Rs. 14,43,922/- u/s 43B
1. The learned Commissioner of Income Tax (Appeals) NFAC has erred in fact and in law in not appreciating the fact that assessee had neither claimed a deduction of Rs. 14,43,922/- being unpaid service tax nor debited it in ” Profit & Loss Account so no question of disallowing the deduction which was not even claimed.
2. The learned Commissioner of Income Tax (Appeals) NFAC has erred in fact and in law in concluding that the Service Tax of Rs. 14,43,922/- was not passing through the Profit and Loss etc. should be added whereas the provisions of section 43B applies to those expenditure, which are claimed, but, which were not paid before filing of the return of income, can be disallowed.
3. Without prejudice to above, the learned Commissioner of Income Tax (Appeals) NFAC has erred in law and in fact that is addition of unpaid service tax liability is confirmed in A.Y 2017-18, at least the deduction of same service tax liability should be allowed as deduction, when it is actually paid in immediately succeeding years as per provisions of Section 43B.
4. It was held in similar case of Ramesh Kumar Lalan Tiwari Vs. ITO ward 2(3)(5) ITA No. 434/SRT/2023 (A.Y 2018- 19) by ITAT, Surat Bench that,” no disallowance of unpaid service tax liability can be made when such ‘deduction is not claimed by assessee in his profit and loss account. Therefore, we direct the Assessing Officer to verify the fact and allow full relief to the assessee”.
Ground on addition of Rs. 2,74,781 u/s 36(1)(va)
5. The learned Commissioner of Income Tax (Appeals) NFAC grossly erred in law and in fact that impugned provision of 36(1)(va) is completely arbitrary and unreasonable as the right to claim deduction of employees share of provident fund is lost permanently, if there is delay of even one day on part of employer assessee.
6. The learned Commissioner of Income Tax (Appeals) NFAC has failed to appreciate that there is no separate provision In EPF Act, to deposit Employer share’ of contribution and employee share of contribution separately. Due to this, whenever there is working capita] crisis, the assessee even though willing to discharge his liability of employee share of contribution is unable to do so. So this is treated unequally in law, hence violation of Article 14 of COI.
7. The learned Commissioner of Income Tax (Appeals) NFAC grossly erred in law that impugned provision of 36(1)(va) are against the principles of Natural Justice as per Doctrine of Double Jeopardy, as the same assessee is being taxed brutally by Income Tax Act as well as EPF Act. Article 20(2) of the Constitution of India is violated as assessee is prosecuted and punished for same offence more than once.
8. The learned Commissioner of Income Tax (Appeals) NFAC grossly erred in law that impugned provision of 36(1)(va) as Article 19(1)(g) is violated.
9. Without prejudice to above, the learned Commissioner of Income Tax (Appeals) NFAC has erred in law and in fact of the case there is Seamless flow of credit of Employee share of PF/ESIC, i.e. no loss occurs to employee due to such delay in payment by employer. So the assessee should not be punished so cruelly when he Is sandwiched for no/delayed/slow payments from Service recipient (Contractee Company) and timely payment to workers.
10. The learned commissioner of Income tax (Appeals) NFAG has erred in law and in fact that addition u/s 36(1)(va) cannot be made by CPC u/s 143(1)(a).
11. The appellant craves leave to add/delete/ alter/ modify grounds which would be necessary for adjudication of the case.”
2. Rival submissions of both the parties have been heard and record perused. At the outset of hearing, the learned Advocate / Authorised Representative (ld. AR) of the assessee submits that a very short question is involved in the present appeal. Ground No. 1 of the appeal which relates to disallowance under Section 43B of the Income Tax Act, 1961 (in short, the Act) on account of unpaid service tax. The ld. AR of the assessee submits that in the computation of income, the assessee has not claimed deduction of unpaid service tax liability of Rs. 14,43,922/-, therefore, there is no question for such disallowance by Assessing Officer. The Assessing Officer and the ld. CIT(A) failed to appreciate such fact that when any expense is not claimed, no such disallowance is permissible. To support such submission, the ld. AR of the assessee relied upon the decision of Surat Bench in the case of Rameshkumar Lalan Tiwari Vs ITO in ITA No. 484/Srt/2023. Against ground No. 2, the ld. AR of the assessee submits that the Assessing Officer made disallowance despite the fact that there was only one day delay in depositing of employees contribution towards PF and ESI by assessee. The ld. AR of the assessee submits that the delay in deposit of such contribution may be condoned and the assessee may be allowed relief on such disallowance. No such disallowances can be made by CPC while processing the return of income. No loss is occurred to the employee in depositing such contribution by one day’s delay. Such disallowances are unreasonable and violation of Article 14, 19(1)(g) and 20(2) of Constitution of India.
3. On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) for the revenue supported the orders of lower authorities. The ld. Sr. DR for the revenue on ground No. 1 of appeal submits that the assessee has not given evidence that such deduction is not claimed by assessee in its P&L account. The assessee claimed that they are following mercantile system of accounting and followed exclusive method of the purpose of accounting of service tax. No evidence was filed before ld CIT(A), even in the audit report there is no such reference. Against ground No. 2 which relates to delay in deposit of employee’s contribution of PF & ESI, the ld. Sr. DR for the revenue submits that this issue is covered against the assessee by the decision of Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. vs CIT in Civil Appeal No. 2833 of 2016.
4. I have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. I find that the CPC/Assessing Officer while processing the return of income, disallowed unpaid service tax liability on the basis of reference in audit report/ Form-3CD. The ld. CIT(A) confirmed the action of CPC/Assessing Officer by taking view that the assessee claimed that they are following mercantile system of accounting and followed exclusive method of the purpose of accounting of service tax but no evidence was filed before him, even in the audit report there is no such reference. Before me, the ld. AR of the assessee vehemently argued that no such deduction is claimed by assessee in his P&L account and relied upon the decision of Division Bench of this Tribunal in Rameshkumar Lalan Tiwari Vs ITO (supra). Considering the fact that the assessee has not claimed such deduction in his P&L account, therefore, no disallowance is warranted, hence, I am in agreement with the contention of ld. AR of the assessee. Thus, the Assessing Officer is directed to verify the fact that the assessee is following mercantile system of accounting and followed exclusive method of the purpose of accounting of service tax and in case no such deduction if claimed by the assessee in his P&L account, allow relief to the assessee. The assessee is also directed to provide all required details to the Assessing Officer. In the result, ground No. 1 of appeal is allowed.
5. So far as disallowance under Section 36(1)(va) of the Act is concerned, I find that this ground of appeal is covered against the assessee by the decision of Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. vs CIT (supra) wherein it has been held that no deduction is allowable for delay in deposit of employees’ contribution on account of ESIC and PF. Admittedly, there is delay in deposit of employees’ contribution by assesse, thus I do not find any force in the submissions of ld AR of the assessee. In the result, this ground of appeal is dismissed.
6. In the result, appeal of assessee is partly allowed.
Order announced in open court on 01st October, 2024.